F -111 Space launcher

Australia has successfully built small satellites like Fedsat but has completely kept out of building orbital rockets. Could that be changed? There's considerable interest in rapid response launchers by the military and civilian users. The French are looking into using a Rafale jet fighter to launch micro satellites. See below.

Now the RAAF will be replacing the F-111 in 2010. Why not let the private sector convert de-fanged versions of the old jets into space launchers? It would be a supersonic first stage that could quickly launch microsats into any latitude from just about anywhere. The system would service both civilian and military markets including the US. The government would need to be involved to cut through ITAR restrictions so some sort of private-public partnership would be required but we would have a have a very useful capability.

Real tax reform needs real welfare reform

If you want to reduce tax then government expenditure has to be cut. The main expenditure item for the Commonwealth government is welfare. So real tax cuts require real welfare cuts. That is the reality that politicians who propose tax reform don't like to mention.

Achieving significant tax cuts is politically difficult. The usual solution is to admit theres a lot of middle class welfare and try to impose a means test to better target expenditure. The result is a complex and more expensive to administer welfare system and an increasingly disgruntled middle class. They claim with some justification that as the main source of tax revenue they should receive compensatory payments in return – the old “I paid tax all my life” argument. Thats the reason we have a high amount of tax churning, tax taken from taxpayers and then paid back as welfare, the main beneficiary are the public servants who administer the schemes.

The political reality is that people have become accustomed to the current system and any proposal for substantial tax cuts and commensurate welfare cuts would be viewed as an attack on basic social security. The government would lose office.

Theres is a better way, don't cut welfare but replace it with something better. A system based on wealth creation and personal responsibility.

For several years the government has been running substantial budgetary surpluses. Those surplus have been invested in the Future Fund or some other government investment scheme. Taxes should be raised to pay for the proper function of government not invested in the stock market or to set up a multi- billion dollar slush fund. The money rightfully should be in the pockets of the working men and women of Australia.

The reason given for the large surpluses is to prevent the economy over the economy heating, causing inflation and higher interest rates. While this writer is in no position to question the governments reasoning it seems at best unimaginative.

I propose that the surplus be given back to workers as a tax cut or tax credit. However it would not go directly go into pay accounts but into a special investment fund earning interest – call is something like Personal Welfare Account, linked to the individual's superannuation. There are about 10 million workers in Australia, if the $20 billion surplus expected this year was used this way it would give every worker a $2000 tax refund. Within few years every worker would have $6000-$8000 in their account. At that stage the PWA would be able to cover the first six months of unemployment at the same or higher rate as the dole. There would be no means test and minimal contact with Centrelink required. As the fund grows it could be used to replace other welfare payments. On retirement the money would be rolled into your superannuation. This has the great advantage that as the PWA grow welfare can be reduced allowing further tax cuts without the necessity of cutting government income support.

Such a scheme would instigate a virtuous cycle of increasing private welfare provisions and tax cuts the reverse f the current situation.

references:

Restoring Self Reliance in Welfare : Twenty Million Future Funds Peter Saunders

Restoring self-reliance in welfare : Six arguments in favour of self funding Peter Saunders

Restoring self-reliance in welfare L The $85 billion tax/welfare churn Peter Saunders

A Welfare State for Those Who Want One, Opts-outs for Those Who Don't Peter Saunders

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Privatize Centrelink

The great frontier for privatization is government administration. If governments want to provide better services for customers and receive value for money then the administration of government programs need to be in a competitive market.

The public generally forgets that state agencies such as Centrelink and Medicare are monopolies, they are state owned enterprises who basically administer databases. Theres absolutely no reason why their activities couldn't be done by the private sector. Companies often outsource activities such as superannuation and share registry administration, customer service call centres etc. The private sector already has the basic organizations in place, they could quickly organize to take over the work.

Governments would farm out their programs by competitive tender for say, three years. Targets would be set and the results monitored. Fees tied to performance.

Critics will say that unlike Centrelink private companies would be driven by profit. While Centrelink may not technically make a profit, in 2005/2006 it had a “operating result” of $11.2 million. As well there was return to government of $45.6 million and it was $217.5 million cash flow positive too. The private sector could certainly operate programs efficiently and still make a profit. probably at reduced cost to the government. The no profit argument is no different then what was said before the privatization of Telstra or Commonwealth Bank. Those evil profits allow companies to grow and invest providing revenues to governments through economic growth.

John Stone: Unjust, unimaginative gall of withholding cuts

May 02, 2005

NEXT week's federal budget will apparently provide no relief from our personal income tax burdens. If so, public reaction will be justifiably savage.

In an April 7 interview the Prime Minister said the budget would "have a strong surplus, quite deliberately", because "we need it". This would be after further spending on quite a large agenda of welfare reforms.

The latter was not, he said, "a cost-cutting exercise". Indeed, the now completed Expenditure Review Committee process reportedly did not involve any significant attempts to find savings by abolishing or even cutting existing spending programs.

This general impression of a government complacent about its past high-spending, high-taxing record and devoid of any drive, let alone imagination, to reform our personal income tax system, was reinforced by the Treasurer on the ABC's Insider program on April 24. The budget's key theme is "sustainability". Whatever that may mean, it does not seem to include general tax relief.

To see the absolute gall of such an outcome, consider a few figures. The last budget put this year's underlying cash surplus at $2.4billion, and that for 2005-06 at $1.6billion. More recently, the mid-year economic and fiscal outlook incorporated the new policy expenditures resulting both from the Government's pre-election spending spree and from its election campaign spending promises, totalling $1.6billion in 2004-05 and $2.9billion in 2005-06.

Yet the underlying cash surpluses rose sharply, to $6.2billion and $4.5billion respectively. Last month's Access Economics business outlook saw the surplus outcomes for both years "likely to out-perform official forecasts" even further.

Can it really be that, apart from new spending on its welfare reforms, the Government is simply proposing to hang on to these huge surpluses quite deliberately? To lend some verisimilitude to this otherwise indefensible policy, it has devised a so-called future fund, into which it will pay these surpluses (plus most of the proceeds from Telstra and other future asset sales) to fund, over time, the present large public service superannuation accounts deficit.

It has always been hard to take the future-fund notion seriously. When it first surfaced as a broader inter-generational fund, the secretary to the Treasury, Ken Henry, was openly, and rightly, scathing about it. Now that ministers have decided to erect this nonsense on stilts at the apex of this and future budgets, he has understandably fallen silent.

Our Government should certainly provide annually in its budget for the future pension liabilities it is now accruing. And funding liabilities previously accrued is an appropriate use of asset sale proceeds. But requiring current taxpayers to make good, from their present heavily taxed incomes, the fiscal failings of the past, is as unjust as it is financially unnecessary.

The post-election period has seen a stream of proposals for reforming our personal income tax system. Of course, no reasonable person has expected the Government to do so overnight in next week's budget. What reasonable people have had every right to expect, however, are four things.

First, the Government next week should clearly and unequivocally commit to a significant reform. Second, it should clearly set out that reform's key objectives, including a broad timetable. Third, it should take the first steps towards those objectives, using the huge surpluses now available and in prospect. Fourth, it should stop talking nonsense about hoarding those surpluses for the benefit of some future generation much richer than us.

As to detail, I note two generalisations and three particulars. The first generalisation is that tax reform is best associated with spending restraint. The second is that, so long as we have high marginal personal tax rates, taxpayers will move heaven and earth to (legally) avoid them.

In Kerry Packer's famous words to a parliamentary committee, they will do so because they rightly object to handing over their incomes "to be spent by people like you". The three particulars are, first, the need to align the current 42 and 47 per cent personal tax rates with the 30 per cent company rate (thereby removing the most significant tax avoidance avenue).

Second, to begin gradually removing the $6000 zero-rate threshold, the second-most important tax avoidance area, containing about $70billion of untaxed income and constituting the greatest single obstacle to reform.

Third, to aim ultimately for a single rate tax (thereby automatically removing bracket creep) at not more than 25 per cent, and preferably 20 per cent.

The savagely punitive nature of our present personal income tax arrangements is now painfully evident to everyone enmeshed in them. The Government's apparent disregard of that political reality, if confirmed next Tuesday, will cost it dear.

John Stone, a former Treasury secretary and National Party senator, is conference convener of the Samuel Griffith Society

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Mike Steketee: A way to spark real incentive

Mike Steketee: A way to spark real incentive

April 28, 2005

RATHER than a nip here and a tuck there, Ross Garnaut has an idea for really fixing the tax and welfare systems.

It's a 30per cent flat tax levied from the first dollar of earned income.

It would be offset at lower to middle incomes by a so-called negative income tax in the form of a flat-rate government payment, while at higher incomes an assets test would apply and many of the vast array of tax concessions would be removed. Company tax would remain at 30per cent and capital gains tax would be raised to the same level.

On his basic proposition of a flat-rate tax, Garnaut, professor of economics at the Australian National University and an influential economic adviser to Bob Hawke as prime minister, keeps some interesting company. The recently departed Joh Bjelke-Petersen was an advocate of flat tax. It has become all the rage in eastern Europe, with single-rate income taxes ranging from 12per cent in Georgia and 13per cent in Russia up to 33per cent inLithuania.

So what is Garnaut on about? In short, setting Australia up for another burst of economic growth, integrating and greatly simplifying the tax and social security systems and making the tax system more progressive.

Garnaut was a participant in the last wave of bold economic reform, including the floating of the dollar in 1983, financial deregulation and tariff cuts. He thinks we are overdue for another bout to stave off a future of mediocre economic performance. And part of that is rethinking the tax system.

"My main objective is to get people thinking about first-best solutions, rather than just tinkering at the edges," he says.

"There is recognition that you need to do something pretty radical like this if you are really going to deal with the problem of [work] disincentive, which has become so horrific as the social security system has expanded."

This expansion has occurred as more people on lower incomes qualify for benefits to supplement income from part-time and low-paid work and as family benefits have grown. Taxes combined with the withdrawal of multiple benefits as incomes rise creates the problem of effective marginal rates of tax of 70per cent or more and the resulting disincentive to take up work.

Garnaut points out that the proportion of the population employed was higher in Australia than the US and New Zealand up until the 1980s but now it is lower than both. One reason he identifies is Australia's higher EMTRs.

His reform would lower these rates for most people to 30per cent. Combined with a freeze in minimum wages, which also are higher than in the US and New Zealand, he suggests that this could raise total employment by 5per cent or more over four to five years.

The tax system would become fairer because most of the opportunities high-income earners have to reduce their tax would be removed. There no longer would be an advantage in diverting income into companies or capital gains because they would all be taxed at the same rate.

As you would expect with such a big-bang reform, there are plenty of potential problems and objections. Garnaut is really proposing a move away from means tests and back towards a universal system as a means of increasing incentives. That makes it expensive.

He suggests phasing it in and paying for future stages from future economic growth, including that unleashed by reform. But that involves an act of faith.

Rather than replacing all benefits, the negative income tax could be paid at the same level as unemployment benefits to those in the labour force -- that is, both employed and unemployed.

Those taking jobs would continue to receive the payment and lose only 30per cent of their earned income, as opposed to 70per cent or more now (although during the phase-in period, the flat tax rate would have to be set higher).

Garnaut says the payment could be removed at high incomes -- perhaps $80,000 to $100,000. This would mean that, having first taken away the EMTR problem, it would return, though less severely and higher up the income scale.

To those few higher-income earners paying tax at somewhere close to the top marginal rate of 48.5per cent, a 30per cent tax would be a boon. Garnaut would accept a higher tax rate for high- income earners but says that it would not add much to revenue because it would apply to only a small proportion of taxpayers.

The Government has been mulling for more than six years over the barriers to work created by high EMTRs but made progress in only a few areas. The problem will only get worse on current trends. Forcing more people into work by changing the eligibility requirements for benefits, as it plans to do in the budget, is a limited response.

The undeniable logic of Garnaut's reform has to be balanced against implementing it in practice and the political risks involved in any bold reform, particularly one advocated from Opposition.

But shadow treasurer Wayne Swan is interested in Garnaut's ideas, particularly in the longer term. "We have relied too much on the social security system to redistribute income rather than on our primary redistributive mechanism, the tax system," he said recently.

There also has been "a bit" of interest from the government side, says Garnaut, "although it doesn't mean the Treasurer is about to run with it".

Still, Garnaut has spiced up the debate.

Mike Steketee is The Australian's National affairs editor